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Microsoft Reaches $8.5 Billion Deal for Skype

Microsoft on Tuesday announced it has agreed to acquire Skype for $8.5 billion, making it the largest acquisition in Microsoft's history.

According to Skype, its global videoconferencing and voice communication network has 170 million subscribers and logged 207 billion minutes of conversations in 2010. Skype's service is free, though it offers for-payment premium services, such as the ability to establish multipoint conferences and communicate with non-Skype users.

Microsoft's decision to buy Skype was unexpected, through rumors started swirling yesterday of a possible deal. Although Skype, through its investor group Silver Lake, had been considering an initial public offering, there were also rumors in recent days that Facebook and Google were interested in acquiring the company.

Also, Microsoft has its own communications technologies, including Lync for enterprise customers and Windows Live Messenger, but the acquisition of Skype promises to extend that footprint, Microsoft CEO Steve Ballmer said in a prepared statement.

"Skype is a phenomenal service that is loved by millions of people around the world," Ballmer said. "Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world."

Microsoft intends to run Skype as a separate division, to be headed by its CEO Tony Bates, who will become president of that business. The deal is subject to regulatory approval.

Skype, based in Luxembourg, was founded in 2003 and acquired by eBay in 2005 for $2.6 billion. The eBay acquisition turned out to be a drag on the company, which last year spun it off.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.